Government 'discussing full nationalisation of RBS' as ministers clash on policies to increase lending

Senior government figures are discussing the possibility of a full nationalisation of Royal Bank of Scotland with the state buying the 18 per cent stake it does not already own from private investors, according to reports.

The Financial Times reported on Thursday that ministers were discussing a potential full takeover of RBS, which is already 82 percent owned by the government, to help boost business lending to companies.

The remaining 18 percent of the bank is
owned by private investors and it would cost the government around
£5billion to buy them out, the FT said.

State of flux: Coalition ministers Vince Cable (left) and George Osborne (right) are at odds over a full state takeover of RBS.

The policy is being pushed by Business Secretary Vince Cable and has been touted in the past by Lib Dem Lord Oakeshott.

They favour a split in RBS to create a business bank with a clean balance
sheet and a mandate to expand lending to businesses.

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Chancellor George Osborne is opposed to
fully nationalising RBS, which would mean taxpayers taking full
responsibility for the bank's toxic debts. The bank is expected to report a loss for the first half of the year in financial results due tomorrow.

The Telegraph later reported that senior Treasury sources had 'played down' talk of a full nationalisation.

The official line remains that the bank will be returned to private ownership when good value can be achieved for taxpayers. Britain used about £45billion of taxpayers' money to rescue RBS, and eventually aims to sell it back to the private sector.

The Treasury on Wednesday launched its latest scheme to free up credit, but some at the top of government believe forcing RBS to lend more is the only way to push the banks into action, according to the FT.

This would mean directing the bank to increase its lending to companies, which would be open to legal challenge by the remaining shareholders. The only way to get round this is to buy out those shareholders, the FT said.

A full nationalisation was not on the agenda, an industry source said, citing several reasons why the Treasury would not have the appetite for such a move.

In addition to the extra cost, EU regulators would be unlikely to allow a state-owned RBS to aggressively undercut rivals on lending, and the government would attract more criticism for bonuses, lending and issues like the Libor interest rate rigging scandal if it wholly owned RBS, he said.